South West Food & Drink

1. South West Food & Drink An Economic Assessment of the Food and Drink Sector in the South West Autumn 2011

2. Contents • Introduction • Sector Context • Employment in F&D sectors • Detailed Sector Breakdown • Primary Producers & Processors • Food Machinery Manufacturers/F&D Wholesalers • F&D Retail • F&D Related Services/Summary • Employment Trends • GVA Trends • F&D Share of SW GVA • SW F&D Share of UK F&D Output • Current Prices • Agricultural Output – Current vs Constant • Modelled GVA • F&D Exports • Projections, Forecasts & Aspirations The original report from which this presentation has been put together was compiled for SWFD by Nigel Jump and Donald Barr, formerly of the South West of England Regional Development Agency (SWRDA) Economics and Evidence Team. It is presented here as an element of the Developing Sustainable Food Chains Toolkit in order to provide context for economic development activity in the food and drink sector in the SW of England.

3. Introduction • F&D includes land based activities relating to agriculture and fishing, the process sectors in food and drink manufacturing, and the services industries, largely in distribution (wholesale and retail) and the broad area of leisure services • The SW F&D sectors reflect many of the broad strengths and weaknesses of the SW economy as a whole • There are many natural and human advantages to sector development in this part of the world that should make for a highly competitive F&D offer to markets at home and abroad • Across the various aspects of local and regional branding, from fresh to processed products of high quality, and from retail, business and visitor services, F&D has the potential to be a centre of SW activity that is nationally and internationally renowned The sector has made good progress in recent years and there is further capacity to continue this trend In strategic terms, the F&D industries have a potentially powerful range of products, services and value to sell. It is important that SW businesses are able to develop these competitive and comparative advantages in a synchronised way within each sector supply chain: seeking to “co-operate to compete” in order to benefit from the economic reshaping that is now, of necessity, underway

4. Sector Context • Food & Drink is an important component of the SW Economy • In terms of output and employment it represents a significant part of the physical & industrial landscape • There are significant supply chain linkages to other industries, especially tourism and leisure, but also almost all aspects of production and services • Nearly 17% of all businesses in the SW are directly involved in growing, processing or distributing food & drink • A total of 282 000 people are employed in specialist food and drink companies – and 441 000 in food and drink related businesses

5. Employment in Food & Drink Sectors • 11.5% of the SW’s employment is in specialist F&D sector activities (UK 9.9%) • 4.4% of the SW’s employment is in supermarkets (UK 3.7%) • 2.2% of the SW’s employment is in accommodation (UK 1.4%) • Total of 17.9% of the SW’s employment is in related F&D sector activities Source: Business Register and Employment Survey, 2009

6. Detailed Sector BreakdownPrimary Producers & Processors • Agriculture, fishing & aquaculture – 70 500 employees (15% of UK total) • Food and drink processing – 33 800 employees (9% of UK total) • Location Quotient indicates how strongly the activity is represented in the SW compared to UK average (100 being average) • Manufacture of dairy products is heavily represented in the SW and accounts for 28% of the UK total Source: Business Register and Employment Survey, 2009

7. Detailed Sector BreakdownFood Machinery Manufacture and Food & Drink Wholesalers • Manufacture of machinery for F&D processing is low in the SW (8% of UK total) • Manufacturing in general employs 235 000 in SW (9% of UK total) • F&D wholesale in the SW employs 22 800 (10% of UK total) • F&D wholesale represents 24% of total employees in wholesale trade in the SW Source: Business Register and Employment Survey, 2009

8. Detailed Sector BreakdownFood and Drink Retail • Non-specialised stores with F&D predominating (eg supermarkets) employ a total of 104 600 in the SW (10% of UK total) • This figure represents 37% of the total employment in all retail in the SW • Specialist F&D retailers employ 15 200 in the SW (9% of UK total) • Delicatessens, grocers, butchers and fishmongers are well represented in the SW compared to the UK average Source: Business Register and Employment Survey, 2009

9. Detailed Sector BreakdownFood and Drink Related Services and Summary • Restaurants and caterers are slightly under represented in the SW in terms of employment (9% & 7% of UK total respectively) • Accommodation providers serving food are well represented, employing 54 400 in the SW (14% of UK total) • Overall, F&D (specialised and related sectors) employs 441 000 in the SW (10% of UK total) Source: Business Register and Employment Survey, 2009

10. Employment Trends • F&D share of region’s labour input (FTE or Full Time Equivalent) has fallen steadily since 1998 • Majority of this is due to declining shares of primary producers and processors • This has been partly offset by the growth in employment in F&D services (42% growth since 1998, more than double that of the SW economy as a whole) • Strong internal UK labour migration into the SW

11. Gross Value Added (GVA) TrendsF&D Share of SW GVA • GVA is the main measure of economic output or income in a given period at a sub-national level • It captures the total addition to output/income from an economy, sector or business by subtracting the cost of bought-in inputs from the market price • Estimates the total value added along the supply chain by, at each stage in the chain, avoiding any double counting of value added at the previous stage • Over time, the GVA of the F&D sectors in the SW has been declining • In 2008, agricultural output stood at £1.2 billion (1.3% of SW total) • Fishing and fisheries output was £67 million (0.1% of SW total) • F&D manufacturing output was £1.7 billion (1.8% of SW total)

12. GVA Trends (continued)SW F&D Share of UK F&D Output • The SW primary production sectors account for a significant proportion of the UK’s primary production • Agriculture has risen to over 14% in recent years from a previous average of around 12% • Fishing has risen dramatically from 7% to 13% over the same 20 year period – probably due to a sustained increase in SW prices and volumes over the period • F&D manufacturing share has remained fairly constant at 8% for the past 2 decades Source: Defra Production and income accounts – regions 1989 - 2008

13. GVA Trends (continued)Current Prices • The volatile nature of primary commodity prices is reflected in the unusually erratic path of the Agricultural output line • The sharp drop in 2005 is due to the change in accounting practice with the introduction of the decoupled single farm payment scheme (EU crop area and livestock headage payments were no longer treated as production subsidies • The rise in output of the Hotel & Restaurant sector reflects the broader economic shift to services Source: Defra Production and income accounts – regions 1989 - 2008

14. GVA Trends (continued)Agricultural Output – Current vs Constant • This chart compares Agricultural output ‘deflated’ to show changes in volume rather than variations in commodity prices • There has been some growth in volume output since 2004, after a long period of static output • We are currently witnessing both volume and price increases driven by the rising world prices of arable and livestock commodities Source: Defra Production and income accounts – regions 1989 - 2008

15. Modelled GVA • SW Primary production has increased its share of UK GVA from 12.8% to 14.4% in a decade, with values rising from £1.04 billion to £1.2 billion in the same period • F&D services and specialist F&D retail have also increased both their value and share of the GB total in the same period • The share from processing, wholesale, hospitality and supermarket sales has seen a decrease

16. F&D Exports • Devaluation of sterling in 2008 has boosted UK export competitiveness, especially in primary products • There has been strong export growth in meat, dairy, beverages and fruit & vegetables • Overall, though, F&D exports from the SW remain weak and are an area of vulnerability for the sector

17. F&D Exports (continued) • Around ¾ of the region’s F&D exports in 2010 went to the EU, including almost all of the fresh meat, fish, fruit and vegetables • Notable non-EU markets are dairy produce to North America and Miscellaneous edible products to the Middle East • Within the EU, most exports go to France, the Irish Republic and the Netherlands • Spain accounts for 25% of fish exports and Germany for 33% of sweet products

18. Projections • SW projections reveal that, given consensus forecasts for the United Kingdom as a whole, continued output growth in manufacturing and other production sectors, construction and private services, means that total output expands despite contraction in the public sector • The impact of the downturn and the policies adopted to address its effects mean that output growth remains weaker than in the prerecession period over the next five years (Table 1) • Specific F&D estimates are shown in Table 2 • These results reflect the strong influence of the recent economic malaise and the historical modest performance of the F&D industries in the extrapolation Table 1 Table 2

19. Forecasts • Relative prices will shift as income distribution and discretionary spending patterns change in home and overseas markets in response to population ageing and weather • For the region as a whole, expect a trend growth rate of about 2.5% per annum over the next ten-to-twenty years. This is made up of productivity growth averaging about 1.75% per annum and employment growth of 0.75% per annum • Table 3 summarises current views for growth planning in SW England – the different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead • There is a real opportunity for SW F&D manufacturers and its supply chain to raise its game in terms of productivity-led value creation in the years ahead Table 3 The different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead For example, the contingency view reflects, amongst other things, more negative effects of demographic ageing and environmental costs than the central view whereas the aspiration view incorporates more positive elements for incomes, technology, investment and exports

20. Aspiration • Can the SW economy outperform its current potential by the judicious use of investment in its various capabilities and capacity? • Is the SW F&D industry likely to respond positively to the call for economic rebalancing and engage in more investment (in people, plant, process and product) and international trade? • Will the sector become more innovative and skilled, entrepreneurial and competitive in a way that boosts both productivity and employment prospects, value added and profitability? • Will the sector seek to capture a growing market share in growing markets? We believe these aspirations are achievable – if you would like to discuss any aspect of this report with SWFD, please contact us.

21. Contact Details South West Food & Drink COMMUNITY INTEREST COMPANY For further information, or to discuss any aspect of this report, please contact: Nick Cork Email :– nick.cork@southwestfoodanddrink.com Tel – 01392 458309 Mob – 07796 308722

22. 2 SEAS Fish & Chips Project • Elements of the Supply Chain Toolkit are also being developed as part of the 2 SEAS Fish and Chips project, as a contribution to the work being undertaken by Somerset County Council.